In Short
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A circulating resolution lets you pass resolutions without calling a formal meeting.
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Your constitution may require unanimous or majority approval.
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Electronic signatures often count, but check the rules in your constitution.
Tips for Businesses
To streamline decision-making, review your constitution to confirm who must sign. Decide if an email chain or e-signature is acceptable. Keep accurate records of signed documents. Confirm if you need unanimous or majority approval. Seek legal advice for complex matters and compliance requirements to avoid future disputes.
A company’s formal process to approve or make certain decisions is passing a resolution. When the board or shareholders hold a meeting, they will pass the relevant resolutions at the meeting. Sometimes, it is not practical for company directors or shareholders to hold a formal meeting, but the company may need to make a decision or approve specific actions. However, a company may be able to pass a circulating resolution to approve resolutions without a meeting. This article will discuss circulating resolutions, whether your company can pass one and how you can pass one.
What Is a Circulating Resolution?
A circulating resolution is a written document setting out the resolutions (i.e. decisions or actions) your company needs to pass or approve. To pass a resolution, the directors or shareholders who need to pass the resolution need to sign it. This way, your company can pass resolutions without holding a meeting. A circulating resolution is passed once the last person who needs to sign the resolution signs it.
Can My Company Pass a Circulating Resolution?
To determine if the company’s directors or members can pass a circulating resolution, you should consult two main mechanisms. These include:
- the company’s constitution;
- shareholders deed; and
- the Corporations Act.
Section 248A of the Corporation Act (‘Act’) applies to circulating resolutions of companies with more than one director. Under this section, directors can pass a resolution if every director entitled to vote signs a document that states the proposed resolution and confirms their support.
Section 248B of the Corporations Act applies if your company has only one director. It states that the sole director can pass a resolution simply by recording it and then signing that record.
Similarly, under sections 249A and 249B of the Act, the members of the company can pass a resolution without a general meeting being held if:
- the members entitled to vote on the resolution sign a document containing a statement that they are in favour of the resolution set out in the document; and
- the resolution is passed when the last member signs.
Some shareholder agreements have a clause outlining the company’s ability to pass circular resolutions. However, it is more common for the company constitution to contain this clause. Company constitutions will often state that companies with more than one shareholder can pass resolutions:
- using a circulating resolution; or
- through a written instrument signed by all the shareholders entitled to vote on the resolution.
Company constitutions will also contain a similarly worded clause for directors.
Continue reading this article below the formHow to Prepare and Pass a Circulating Resolution
To pass a circulating resolution, your company will need to prepare a document that sets out the resolutions that your company is seeking to pass. A circulating resolution will typically contain the reasons for the resolution and the resolutions your company is seeking to pass.
Everyone entitled to vote on the resolution will then need to sign the document. Your company’s constitution might allow a director’s circulating resolution to pass without requiring every director to sign it. Instead, it may specify that a majority (50% or more) or a special majority (usually 75% or more) of directors signing in favour is enough to approve the resolution.
However, most of the time, all the directors and shareholders will need to sign a circulating resolution. As a result, you should consider the requirements of your company’s constitution to determine who has to sign.
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Key Takeaways
A circulating resolution allows directors or shareholders to pass a resolution in writing rather than having to hold a meeting. The general rule is that companies may pass a circulating resolution if all the parties that are entitled to vote on the resolution sign that they are in favour of it. Shareholders with the right to vote can always pass a circulating resolution, whereas whether directors can pass a circulating resolution will depend on your company’s constitution and shareholders’ agreement.
If you have any questions about passing circular resolutions, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Do we need a unanimous agreement to pass a circulating resolution?
That depends on your company’s constitution. Some require every director’s signature, while others only need a majority.
Can we use electronic signatures?
Often, yes. Check your constitution or any relevant laws to make sure e-signatures are allowed.
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